'We'd buy the dip': 3 Wall Street firms weigh in on Netflix's worse-than-expected earnings report

• While Netflix shares tumbled following a disappointing second-quarter earnings report on Thursday, Wall Street analysts are still optimistic about the company's near-term prospects.
• The streaming giant beat revenue estimates but fell below hopes for second-quarter earnings and third-quarter subscriber-growth guidance.
• Some analysts pointed to a pull-forward in subscribers as a boon for the business, but others fear that a lifting of lockdowns could revive competitors and harm investor interest.
• Here's what three firms had to say about the report and how they expect Netflix shares to move.
• Watch Netflix trade live here.

Netflix's second-quarter figures largely disappointed investors, but Wall Street firms mostly see the report as a bump in the road.

The streaming giant reported revenue of $6.2 billion, landing just above analysts' estimates. Subscriber additions also beat, with Netflix bringing in more than 10 million new users compared with 8.3 million expected.

Still, earnings and forward guidance left shareholders wanting. Profits totaled $1.59 per share over the period, missing the $1.82 estimate. Netflix forecast that 2.5 million users would join its service in the third quarter, reflecting a 75% decline from the previous three-month period; that also came in well below the consensus projection of a 5.1 million increase, according to Bloomberg data.

The company's stock slumped as much as 8% on Friday. But analysts covering Netflix aren't turning bullish just yet. Some pointed to a strong content pipeline as a harbinger of continued success. Others anticipated a sharp decline in subscriber additions as economies reopen and stay-at-home activity fades.

Here's what three analysts had to say about the lackluster report and where Netflix shares are heading.

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Canaccord Genuity: 'An essential part of any consumer entertainment bundle'

The company's lighter-than-expected guidance and strong second-quarter subscriber growth suggested that some of its demand arrived sooner than expected, analysts led by Maria Ripps said Friday. Management's reiteration that second-half content is largely on schedule should keep subscriber additions stable and insulated from the coronavirus pandemic, they added.

Netflix's shifting lineup should also serve as a greater boon moving forward. Where the company previously relied on legacy reruns to keep customers, it's now pulling in users with its own catalog. Greater investment in original content makes Netflix "a destination for some of the biggest movie premieres" and turns the service into "an essential part of any consumer entertainment bundle," the team wrote.

Canaccord Genuity maintained a "buy" rating for Netflix shares, with a target price of $550.

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Credit Suisse: 'Investor interest ... might taper off with countries reopening'

Analysts led by Douglas Mitchelson downgraded Netflix stock to "neutral" from "outperform" following the earnings miss, citing "a lack of near term catalysts." While serious investor worries about competition and content quality have faded, Netflix shares now face pressure from slowed subscriber growth and a revival of key threats.

Competing content including sports, theatrical releases, and renewed TV content is likely to pull viewers back to legacy platforms, the analysts said. Credit Suisse also expects a price increase in either late 2020 or mid-2021, "likely further hampering net adds."

Once lockdowns are lifted and investors set their sights on a post-pandemic Netflix, they may not like what they find, the analysts wrote.

"Investor interest in Netflix as a stay-at-home 'winner' might taper off with countries reopening," Credit Suisse said.

The firm lowered its target price to $525 per share from $550.

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JPMorgan: 'We'd buy the dip'

JPMorgan analysts set the highest price target of the three, expecting shares to launch to $625 over the next year and reiterating an "overweight" rating.

Netflix's third-quarter guidance didn't scare off the team led by Doug Anmuth. The company is still on track to post its best second- and third-quarter subscriber growth ever, the analysts said. Perhaps more important, overall churn sits below both pre-pandemic levels and the year-ago period. Netflix returning to overall global net additions in July further backed up their bullish outlook.

The bank acknowledged the subscriber pull-forward and its effects on third-quarter outlook, saying it would "make Netflix a bigger business 12/24/36 months out" as more people are exposed to the product. There's also more room in the international market to penetrate, they added.

Overall, the Friday stock dip makes for a strong buying opportunity, JPMorgan said.

"Netflix shares traded off 9% after-market given elevated expectations and recent stock appreciation, but we'd by the dip," the team wrote.

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